How I lost 56,000 shekels by timing the market

Last Updated on January 18, 2024

The year was 2018. I was working in hi-tech and earning well. My wife and I smartly decided to open an Israeli investment account.

I had recently learned about a new product called Kupat Gemel Lehashkaa (KGL). It sounded incredible (hindsight: it isn’t ideal for most): tax-free investing, deposits of up to 70,000 ₪ per year, with flexibility over where the money is invested.

So I set myself a goal – to deposit close to the maximum amount each year. And that’s exactly what I did:

Date	Deposit
Feb 2019	55,000 ₪
Dec 2019	8,400 ₪
Jul 2020	66,400 ₪
Dec 2021	66,000 ₪

Time to choose an investment mix

Depositing money into my KGL wasn’t enough. I had to decide how the money should be invested.

I had been investing in stocks for over 15 years and I had experienced one or two market cycles. Markets go up for a while and then crash, “correcting” themselves.

When I analyzed these cycles, it seemed clear that a market correction was imminent. The market had been going up for 10 years straight. How long could it possibly keep rising, maintaining crazily overinflated prices?

I certainly wasn’t alone in this analysis. Market commentators wrote article after article about how the market was at a record high. Could it really continue?

So I made what I thought was a smart decision and transferred a sizeable portion of my KGL to cash and bonds, ready and waiting for the imminent crash.

The market didn’t crash

The crash didn’t come. In the 3 years from January 2019 through December 2021, the S&P500 doubled again from its already incredible heights. That’s right. After going up for 10 years straight, it doubled again during the following 3 years.

Even at the bottom of the COVID-19 dip of 2020 the stock market was still higher than its value a year earlier at January 2019.

My poor account

Because I wasn’t invested in the market, I missed out on all of this growth. My account simply stagnated.

The account (red line) had almost no investment growth and simply grew with my deposits (yellow line). If I had the money invested in the S&P500 (blue line), I would have made another 56,000 ₪. Ouch!

Key lessons

There are several things I learned from this experience:

1. Timing the market is hard. Analyses show that it usually fails.
2. Gaining perspective is hard. What looks like a market peak, could just be the middle of the slope upwards. And what looks like a horrible time to invest, could be the beginning of the next cycle.
3. Mistakes in investing are valuable and worthwhile. We can learn a lot from our mistakes.

Is this cherry picking?

These were indeed three incredible years in the market. The market doesn’t always go up like this.

But the lesson consistently holds true over the long term. Time in the market is more important than timing the market. Markets are up in 3 out of every 4 years. Given that we can’t predict which years will be up and which years will be down, being in the market gives us a 75% chance of success of winning in any particular year.

If we miss just 10 of the best days in a market cycle, we miss out on 54% (!) of the growth.

Applying these lessons to today’s uncertain environment

We are living through some volatile times. Rising interest rates, inflation, recession fears, market crashes, layoffs, and more. Every week people tell me that they’re worried about investing in this environment. Others are waiting for the market to bottom out.

I understand these sentiments. The problem is that Bibi is not going to call an 8pm news conference and announce that the market has reached the bottom (nor should you believe him if he does). And when the market recovers it recovers faster than most people can react.

Those looking to invest for the long term will succeed by fighting the urge to time the market. Investing early and often and ignoring market movements is the best recipe for success.

Some personal reflections

As much as we can learn from each other’s successes, we can also learn from each other’s mistakes.

Nowadays, I follow my own advice and don’t try to time the market. I try to transfer money monthly to my investment account and buy into the market, regardless of the market price. This is called dollar cost averaging.

I invest primarily in globally diversified ETFs. I don’t try to sell when the market seems high and I don’t try to keep money aside, waiting for a crash.

I love the fact that simple is often best when it comes to investing. Let me teach you how.